With no clarity how Trump-Xi meeting at the G20 summit in Argentina would pan out, UOBKH believes that the market will be taking flight into safety stocks with strong fundamentals. Thus, moving forward, UOBKH recommends investors to reposition their portfolio with such stocks to build up portfolio resilience.
Investors Takeaway: 4 Cash Rich Companies With Generous Yields
Despite registering slightly weaker 3Q18 results, UOBKH believes that ST Engineering’s long-term value remains intact. ST Engineering’s internal operating cash flow will also be sufficient to fund its dividend payout of $0.17 in 2019, based on a payout ratio of 85 percent. This implies an attractive yield of 4.9 percent.
ST Engineering’s recent acquisition of MRAS is in the midst of getting clearance from the authorities. Once the acquisition is complete, ST Engineering expects MRAS to be immediately accretive. UOBKH foresees MRAS order book to be incorporated into ST Engineering’s order book, which will result in a substantial increase in ST Engineering’s order book size. UOBKH also notes that there could be scope for ST Engineering to work closer with General Electric on aircraft leasing or aircraft maintenance, repair and overhaul (MRO) following the MRAS acquisition.
Moreover, ST Engineering has a mature set of cybersecurity solutions that form an integral part of its comprehensive suite of products and solutions. At a fair value, UOBKH believes that ST Engineering will trade at 20.6 times FY19 price-to-earnings (P/E) which translates to a target price of $4.06 and an upside of 16.7 percent from the current share price.
OCBC surprised the market with a resurgence in net interest margin. OCBC recorded a positive net interest margin expansion, thanks to an interest rate hike for residential mortgages in Singapore since August 2018. Its subsidiaries like OCBC Wing Hang and OCBC NISP (Indonesia) also saw its margins expand.
The management has indicated that OCBC is likely to turn off its scrip dividend scheme for the final dividend. UOBKH foresees OCBC to increase its dividend payout ratio to 40 plus percent, which will give investors an even more attractive dividend yield. UOBKH ascribed a Buy call on OCBC with a target price of $14.05. The target price represents a 23.5 percent potential upside for OCBC.
Singapore Telecommunications (Singtel) fell below its consensus estimates in this quarter largely due to huge losses from Bharti Airtel. The sustained pricing pressure from Reliance Jio to aggressively expand its market share led to a loss of 12 million mobile subscribers for its Indian associate. The loss was made up by Telkomsel as its strategy to increase pricing for data helped to mitigate its declining voice and SMS revenue.
Moving forward, Singtel’s management is guiding for low single-digit growth for revenue and stable EBITDA in FY19. Barring unforeseen circumstances, the management intends to maintain ordinary dividends at $0.175 for the next two financial years. Thereafter, it will revert back to paying 60-75 percent of underlying net profit. At the current share price of $3.12, Singtel offers a yield of 5.6 percent. UOBKH believes the blue-chip deserves a better valuation and gave Singtel a Buy call with a target price of $3.90. The potential upside for Singtel is 25 percent.
CSE Global saw its 3Q18 results exceed consensus expectations, thanks to revenue growth and moderate improvement in its gross margin. Revenue growth was driven by stronger performance from infrastructure and oil & gas segments while gross margins improved contributions from small projects with higher margins.
Due to its strong performance, CSE Global managed to grow its net cash position to $34.4 million. UOBKH notes that this will sustain CSE Global’s dividend target of $0.0275 per share, which translates to a dividend yield of roughly 6 percent. UOBKH thinks that the cash hoard could translate to merger or acquisition activities for CSE Global to further generate inorganic growth. UOBKH maintained its Buy call on CSE Global with a target price to $0.59, representing an upside of 38.8 percent.